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There is an influential, neo-liberal proposition in the scholarly literature on China’s economic transformation since the late 1970s. It states that China’s reformed economic institutions are a mix of market-conforming and market-supplanting elements, that its developmental achievements so far have been ascribable to the conforming elements whereas the accumulated problems being ascribable to the supplanting elements, and that the problems have tended to outweigh the achievements as the country’s economic transition progresses from the allegedly easy phase to the difficult phase. This paper offers an alternative interpretation of the Chinese experience. The central proposition is that China’s economic institutions could be seen in favourable light both theoretically and with reference to the East Asian development experience. Specifically, the developmental implications of the market-conforming and market-supplanting elements should not be understood in any absolute sense, but rather depend on the appropriate match or otherwise between the institutions and the external environment. The developmental achievements to date indicate that China’s economic reform has managed to achieve a basically appropriate match between the two aspects, although enormous uncertainties still cloud over the future prospects owing to changes both in the external environment and the reform strategies of the state leadership.
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